Compare HELOC rates in Illinois.

Introduction to HELOC Rates

When looking for the best home equity line of credit (HELOC) rates in Illinois, it’s important to understand what factors go into determining the rate you are offered. After all, if you’ve been diligently paying off your home loan and building equity in your home, you’ll want to get the best interest rate possible when you borrow against it.

This article will help you master the ins and outs of HELOC rates in Illinois. You’ll learn what to do before applying for a HELOC so that you put your best financial foot forward. We’ll guide you through the steps of the application, and even help you consider all the different types of home equity loans available to you. We’re going to start by reviewing the basics:

What Is a HELOC?

A HELOC is like a credit card with a spending limit that’s based on your home’s value (minus whatever you still owe on your mortgage). HELOCs allow you to get equity out of your home that you can use for various purposes, including home improvements and debt consolidation. You can take the money in increments, and you only pay interest on what you have drawn at any given time.

A HELOC has draw and repayment phases. Here’s how they differ.

The Draw Period

During the HELOC’s draw period, which is usually a decade, you can access funds up to your credit limit. While interest payments are typically mandatory, principal payments may be optional. But if you pay down the principal during the draw period, you can borrow money again, up to the credit line.

HELOCs tend to have a variable interest rate. The initial rate may be lower than you would get with a home equity loan or a personal loan, but over time it will change with market rates, so it’s important to know that before you dive in. To better understand what your financial obligations might look like at different interest rates, you can use a HELOC repayment calculator.

The Repayment Period

During the repayment period (typically 10 to 20 years), borrowing ends, and the principal is paid back with interest. Here again, the interest rate may change from time to time according to the prearranged rules of your loan, so your monthly payments may be unpredictable.

Where Do HELOC Interest Rates Come From?

Federal Reserve interest rate decisions influence prime rates, which are lenders’ interest rates for their most creditworthy customers. The prime rate, in turn, affects what rate you might be offered for a HELOC. Lenders adjust their prime rate for individual borrowers based on an applicant’s personal financial profile.

How Interest Rates Impact HELOC Affordability

It’s worth spending a little time keeping tabs on the Fed’s movements and average prime rates, because fluctuations in interest rates can have a significant impact on the affordability of a HELOC. Over the course of a 20-year term, even a seemingly small 1% difference in interest rate can result in a noticeable increase in the monthly payment and a substantial difference in total interest paid.

HELOC Interest Rate Trends

To quickly gain perspective about what might be a “good” interest rate for a HELOC, you can examine the movement of the average prime rate in recent years, as shown in the chart below. The average prime rate reached a low of 3.25% in 2020 and a high of 8.50% in 2023. The graphic below shows the rate over more than half a century. As you can see, there have been ups and downs but very low rates, below 4.00%, haven’t come often.

Historical Prime Interest Rate

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

The prime rate isn’t the only thing that will affect the HELOC interest rate you might be offered. There are several key factors that are specific to each individual borrower, and you’ll want to pay close attention to these.

Home Equity

Possessing substantial home equity lessens your risk profile in the eyes of lenders, and that could mean a favorable interest rate. Customarily, homeowners need a minimum of 15% to 20% in order to qualify a HELOC. But having more equity is better.

Credit Score

Having a credit score of 680 or higher is a necessity when it comes to home equity borrowing. Some lenders even require a score exceeding 700. Again, higher is better because it is a reliable indicator of lower risk for the lender.

Stable Income

Lenders not only look at how much you are earning, but at how consistent your income is when evaluating you for a HELOC. They equate a steady income with a reduced likelihood of default, and that can mean more favorable HELOC rates.

Loan-to-Value Ratio

Most lenders require your combined loan-to-value ratio to be 90% or less. To figure out your CLTV ratio, add what you owe on your mortgage to the amount of credit line you’d like to have with a HELOC. Then divide by your home’s value.

Variable vs Fixed Interest Rates

As noted above, HELOCs feature variable interest rates, which are subject to change over the life of the loan. While variable interest rates typically start lower than fixed rates, they can fluctuate up or down in accordance with market conditions.

Tools & Calculators

Online calculators can help you understand what your monthly payments might look like at varying interest rates, so they are especially helpful if you’re considering a HELOC. Here are three useful ones:

How to Qualify for a Competitive HELOC Rate

There are several steps you can take to better your chances of qualifying for a favorable HELOC rate in Illinois. Study this list before you file your first application.

Strengthen to Your Credit Score

Making timely payments and reducing your credit card balances can help your credit score, so pay extra attention to your credit usage in the months leading up to your HELOC application. Regularly reviewing your credit report to ensure accuracy is another crucial step to take.

Assess Your Home Equity

Your mortgage payments have helped you build equity, but do you have enough equity (at least 15%)? Verify that before you file a HELOC application. You can use a real estate web site to get an estimate of your property value. Subtract from it what you owe on your mortgage and then divide by the property value to learn your equity percentage.

Calculate Your Debt-to-Income Ratio (DTI)

Your debt-to-income (DTI) ratio is determined by dividing your total monthly debt payments (such as your car payment and student loan payment) by your gross monthly income. Some lenders allow a DTI below 50%, while others like it to be still lower — under 36%. A lower DTI can increase your chances of securing favorable terms and rates for a HELOC.

Application Process for a HELOC in Illinois

Step 1. Run the Numbers

Check your credit score, determine your DTI ratio, and figure out roughly how much home equity you have before submitting your first HELOC application. Sometimes you can prequalify for a HELOC online, which speeds the application process.

Step 2. Compare Lenders

Look at lender web sites to see what interest rates they have posted. But don’t just examine interest rates — compare fees, qualification requirements, and other factors. Do they have a minimum and maximum loan amount posted, for example?

Step 3: Gather Your Documents

To apply for a HELOC, you will need personal identification, income verification (pay stubs, W-2 forms) and at least one tax return. If you’re self-employed, lenders may ask for two years’ tax returns. You may also be asked to provide a homeowners insurance declaration page indicating you have adequate coverage.

Step 4: Submit Your Application

Submitting your HELOC application can take place online, by phone, or in person, depending on the lender. Carefully confirm that all of the information provided is accurate and complete, as any mistakes could slow the processing of your application.

Step 5: Get an Appraisal

After submitting your application, a home appraisal will be conducted to determine the current market value of your property. If an in-person visit is required, scheduling it quickly will help move along the application process.

Step 6: Prepare for Closing

Before using your HELOC, you’ll need to sign loan documents and pay fees. Some lenders make funds available within three days following this closing process. Be sure that you completely understand all terms and conditions before you finalize the agreement.

Tax Benefits and Considerations

Homeowners can deduct HELOC interest if the borrowed funds are used for buying, building, or significantly improving their primary residence. Deductions are limited to interest on the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). Consult a tax advisor to confirm eligibility for deductions related to a HELOC.

Closing Costs and Fees

HELOC closing costs are usually lower than typical home-buying or refinancing costs. An appraisal fee of $300 to $600 is often the highest expense. Other costs may include an application fee, loan origination fee, and administrative fees. Some lenders charge annual maintenance fees, transaction fees, inactivity fees, or early termination fees.

Alternatives to HELOCs

Other financing options besides HELOCs can allow you to take advantage of the equity you’ve built in your home. Don’t sign on to a HELOC unless you have carefully considered all your options.

Home Equity Loan

You may be wondering about what is a home equity loan and how it’s different from a HELOC. Home equity loans offer a fixed lump sum (vs. a line of credit like a HELOC) and are repaid at a fixed interest rate (in contrast to a HELOC’s variable rate). In the HELOC vs. home equity loan comparison, it’s worth noting that homeowners can typically access up to 85% of their equity with a home equity loan. With a HELOC, some lenders allow up to 90%.

Cash-Out Refinance

Homeowners can use this special type of mortgage refinance to access home equity by refinancing for more than they owe, paying off their first mortgage, and taking the difference in cash. As you consider a cash-out refinance vs. a home equity line of credit, one major difference is that a refinance gets you a whole new loan, with a new interest rate. If your interest rate on your original mortgage is lower than current rates, you’ll want to look carefully at whether it makes sense to refinance. Another difference? With a refi you have one monthly payment, while with a HELOC or home equity loan, you’ll have two.

Personal Loan

A personal loan is repaid in regular, fixed payments over a set term that can range anywhere from two to seven years. It usually has a higher interest rate than a HELOC because it is unsecured, but some borrowers prefer not using their home as collateral.

Credit Cards

Credit cards typically come with higher interest rates than HELOCs, which can mean it’s quite expensive to carry a large balance from month to month. While credit cards offer flexibility for smaller purchases, a HELOC is often more suitable for larger expenses such as home improvements or debt consolidation.

The Takeaway

A home equity line of credit can provide a versatile source of funding for home projects, debt consolidation, and other big expenses. But you’ll want to thoroughly examine not only the interest rates, but also the fees and repayment terms lenders offer before choosing your path. Taking a few smart steps before and during the application process can help ensure you get the best available interest rate in Illinois.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

What is the monthly payment on a $50,000 HELOC?

If you owed $50,000 on a HELOC and had a 20-year repayment term at a 7.00% interest rate, your monthly payment would be $388. If you had a 6.00% interest rate, your monthly payment would fall to $358. As you can see, the interest rate is an important factor, as is the term.

Is a HELOC a good idea right now?

Whether a home equity line of credit (HELOC) is a sound financial decision hinges on your specific financial circumstances and long-term goals. You can use a HELOC repayment calculator and plug in low and high interest rates. A HELOC has a variable interest rate. So if you feel you can handle the payments at the low end as well as if they rise to a high level, and if you want a flexible borrowing strategy (as opposed to a lump sum loan), then a HELOC may be the right idea for you.

What is the monthly payment on a $100,000 HELOC?

The monthly payment on a $100,000 HELOC depends on how much of the credit line you have actually used, as well as on your interest rate and repayment term. But if you used the entire $100,000 and needed to pay it back at 7.50% interest over 20 years, your monthly payment would be $806.

What are the benefits of a HELOC?

HELOCs present multiple advantages. An important one: You only need to pay interest on the portion of the credit line that you actually use. Another: You may be able to deduct some or all of the interest you pay on your HELOC. And if you borrow against your HELOC and repay the principal during the draw period, you can borrow the money again should you need another large sum.

Do you need an appraisal for a HELOC?

Yes, you will likely need an appraisal for a home equity line of credit. It helps establish how much equity you have in your home and sets the maximum loan amount you can secure.

What disqualifies you from getting a home equity loan?

Several factors can disqualify you from securing a home equity loan, including an unfavorable credit history, inadequate home equity, and a high debt-to-income ratio.

How difficult is it to get a HELOC?

How hard it is to get a HELOC is based upon your financial standing. Do you have a credit score of at least 680? Are your monthly debts less than 50% of your gross monthly income? Do you own at least 20% of your home’s value outright? These are some of the criteria you’ll need to meet in order to obtain approval for a home equity line of credit.

Does HELOC affect credit score?

Yes, having a HELOC can have an impact on your credit score. Applying for a HELOC may result in a hard inquiry on your credit report, which can cause a temporary decrease in your score. And whether or not you make your payments punctually can influence your credit score positively or negatively over the long term.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

SOHL-Q424-023

Compare HELOC rates in Tennessee.

Introduction to HELOC Rates

If you’re thinking about how to get equity out of your home in Tennessee, a home equity line of credit (HELOC) is probably at the top of your list of options. This flexible form of financing uses your home as collateral. But HELOC rates and terms in Tennessee can vary significantly, so it pays to educate yourself before you wade into the market.

This guide to HELOCs will help you understand the factors that influence what rate you might be offered, and guide you as you get your financial life in order prior to the application process. You’ll emerge equipped to make a well-informed decision about how to use your home equity to meet diverse financial requirements. Let’s start at the beginning, with what is a home equity line of credit.

What Is a HELOC?

A HELOC is like a credit card based on your home’s value minus whatever you still owe on your home loan. You can borrow up to 90% of your home’s value. Because a HELOC is secured by your home, its interest rate will be lower than the rate you would get with a personal loan or credit card. HELOCs have variable rates, however, so the rate can adjust up (or down) over time.

A HELOC has two phases, draw and repayment, and it’s important to understand how they differ.

The Draw Period

During the draw period of a home equity line of credit, which typically spans a decade, you are granted access to funds up to the limit of your credit line. You’ll probably have to make interest payments, but you likely won’t have to pay down the principal (although if you do, then you can borrow again up to the credit line). This flexibility is helpful if, say, you need to borrow money for a renovation but you don’t need it all at once, or perhaps you don’t know exactly how much you need.

The Repayment Period

The HELOC repayment period, usually 10 to 20 years, involves paying back the principal plus interest. A HELOC repayment calculator can help you estimate your payments as the variable interest rate changes.

Where Do HELOC Interest Rates Come From?

HELOC interest rates are tied to the prime rate, which in turn is tied to the Federal Reserve’s rate decisions. Lenders use their prime rate for their most creditworthy customers. But the prime rate isn’t for everyone, and lenders adjust the rate they offer each individual customer based on the applicant’s personal financial metrics (more on that below).

How Interest Rates Impact HELOC Affordability

It’s worth spending time to understand interest rates and to seek out a good starting rate on your HELOC because the rate has a significant impact on overall affordability. Let’s say you have a $50,000 HELOC, and you enter the repayment period owing the entire amount. The table below shows how the interest rate for a $50,000 HELOC affects the monthly payment and total interest paid over a 20-year term. Of course the HELOC’s variable rate means your exact number may differ, but this should give you an idea of the impact interest rates can have:

HELOC Interest Rate Trends

HELOC rates in Tennessee tend to follow fluctuations in the average prime rate, so having a sense of the history of the average prime rate, both in recent years and in a long span of time, is helpful to would-be borrowers. In the last few years, the rate has ranged from a low of 3.25% in 2020 to a high of 8.50% in 2023. You can see in the graphic below that rates as low as 3.25% don’t come around very often.

Historical Prime Interest Rate

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

As noted above, the prime rate isn’t the only factor that will influence what a lender will offer you. Several other key factors come into play, and unlike the prime rate, these are things you have some control over.

Home Equity

Typically, homeowners need at least 15% to 20% equity for a HELOC. But having a more substantial home equity position can make you appear less risky to lenders, potentially leading to more favorable interest rates.

Credit Score

A credit score of 680 is the entry point for a HELOC, but again, higher is better and some lenders insist on a score of 700 or better. A higher credit score signals financial responsibility to lenders, potentially unlocking more advantageous terms for you.

Stable Income

Lenders like to see a stable income from HELOC applicants, which is a strong indicator of a lower risk of default.

Loan-to-Value Ratio

Lenders often require a combined loan-to-value ratio of 90% or less. If your home value is $500,000, your mortgage is $300,000, and you want a HELOC of $100,000, your LTV ratio is 80%. (Add your mortgage and your desired HELOC, then divide by your estimated home value to compute your combined LTV ratio.)

Variable vs Fixed Interest Rates

As we’ve seen, HELOCs are characterized by variable interest rates that are subject to fluctuations throughout the loan’s duration. Initially, a HELOC’s rate will likely be set lower than, say, the rate on a home equity loan or a personal loan. But after a fixed period, the HELOC’s variable rate will adjust in accordance with prevailing market conditions. It’s important to grasp this when considering a home equity line of credit.

Tools & Calculators

An online calculator can be especially useful if you’re thinking about borrowing money with a variable interest rate, because you can plug in different rates to get a sense of what monthly payments might be if your rate adjusts up or down. Here are three useful calculators that can help you comprehend the financial repercussions of a HELOC or home equity loan.

How to Qualify for a Competitive HELOC Rate

Now that you understand what goes into the HELOC rate you may be offered in Tennessee, let’s get into the tactics you can use to obtain the most favorable rate possible. This is your to-do list:

Strengthen to Your Credit Score

Making regular, on-time payments and chipping away at any credit card balances can help you cultivate the kind of credit score lenders like. Also take the time to check your credit report, and request a correction should you find any inaccuracies.

Assess Your Home Equity

Increased home equity can lead to better terms and higher amounts when applying for a HELOC. Make sure you have at least 20% equity in your home, and the more the better, before you file an application. Your equity is the value of your home minus whatever you still owe on your mortgage. Divide that result by your home’s value to get a percentage of equity. (You can check a real estate web site for a rough idea of your home’s value.)

Calculate Your Debt-to-Income Ratio (DTI)

Your DTI ratio is how much you spend to cover monthly debt payments divided by your gross monthly income. Home equity lenders generally look for a DTI ratio that’s under 50%, though many prefer a ratio below 36%. This is one case where a lower number is better.

Application Process for a HELOC in Tennessee

The application process for a HELOC in Tennessee involves reviewing your financial health, comparing rates, preparing documentation, submitting an application, undergoing a home appraisal, and waiting for approval and closing. Each step is important so we’ll look at these one by one.

Step 1. Run the Numbers

Before applying for a home equity line of credit, it’s essential to understand your financial standing. Make sure your credit score, DTI ratio, and home equity level meet the minimum numbers. As a reminder, that’s 680, a DTI of 50% at most, and at least 15% home equity.

Step 2. Compare Lenders

Look at published offers from multiple lenders. Consider interest rates, but also qualification requirements, loan limits, fees, and the length of draw and repayment periods.

Step 3: Gather Your Documents

To expedite the process of your home equity line of credit application, have the necessary documents at hand. Gather your most recent pay stubs, your employment history (a resume is handy), your last W-2 and tax return, and your home insurance documents. Being organized and having these ready can expedite the application process.

Step 4: Submit Your Application

Double-check everything for accuracy and don’t leave any questions unanswered. This will help ensure a smooth path through the lender’s evaluation process.

Step 5: Get an Appraisal

A home appraisal will determine an accurate valuation of your property. If the lender requests an in-person appraisal, schedule it promptly.

Step 6: Prepare for Closing

Before you can access your HELOC funds, it is imperative that you sign an agreement and remit any fees that may be required. Some lenders make funds available within three days of the signing of your paperwork.

Tax Benefits and Considerations

Homeowners can deduct the interest paid on a HELOC if the funds are used for buying, building, or significantly improving their primary residence (so keep your receipts). Interest deductions are limited to the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). It’s a good idea to consult a tax advisor to confirm eligibility for deductions related to a HELOC.

Closing Costs and Fees

HELOC closing costs are typically lower than home-buying or refinancing costs. The appraisal fee, ranging from $300 to over $600, is usually the highest expense. Other fees may include application, loan origination, and administrative fees. Some lenders charge annual maintenance, transaction, inactivity, or early termination fees. Many lenders offer to reduce or waive closing costs but may charge a higher interest rate.

Alternatives to HELOCs

There are different types of home equity loans — or, more broadly, ways to borrow the money you might borrow with a HELOC. Each has its pros and cons, so consider these before you sign on with any lender.

Home Equity Loan

Unlike HELOCs with their variable rates, home equity loans provide a lump sum amount and are paid back at a fixed interest rate. More on what is a home equity loan: Like a HELOC, a home equity loan uses your home as collateral. But with a home equity loan, borrowers can usually access up to 85% of their home value. Home equity loans are repaid over a term that can range from 5 to 30 years. Understanding HELOC vs. home equity loan differences can help you choose the right option for your needs.

Cash-Out Refinance

A special type of mortgage refinance, a cash-out refinance lets homeowners tap into home equity by refinancing for more than they owe on their mortgage. They then take the difference as cash which can be used for any purpose. A cash-out refi is useful for those needing a large lump sum, but if your current mortgage has a very favorable rate, you’ll want to carefully compute the added costs a new interest rate might bring.

If you’re thinking about a cash-out refinance vs. a home equity line of credit, another important difference is that a refi will leave you with one monthly payment, while a HELOC would leave you with two (assuming you’re still paying off your home loan).

Personal Loan

A personal loan is a flexible, typically unsecured loan that you pay back in regular, fixed payments over a set term of 2 to 7 years. Personal loans can be used for any purpose and do not require collateral, unlike HELOCs and home equity loans. Although their interest rates are usually higher than the rate for a secured loan, they may be an appealing alternative for those who prefer not to put their home on the line.

Credit Cards

Credit cards typically come with higher interest rates than HELOCs, which can make them much more expensive if you carry a large balance from month to month. While credit cards offer flexibility for smaller purchases, HELOCs and home equity loans are better suited to larger expenses such as home renovations. Because money can be withdrawn from a HELOC in increments, it’s a good middle point between a home equity loan and a credit card.

The Takeaway

HELOCs offer a flexible way to access your home’s equity for many purposes. By understanding the application process and comparing offers from different lenders, you can secure a competitive home equity line of credit rate and terms that meet your financial needs. Improving your credit score and assessing your home equity are key steps to qualifying for the best rates.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

What is the monthly payment on a $50,000 HELOC?

A HELOC repayment calculator can be a useful tool for determining the monthly payment on a $50,000 HELOC. But as an example, if you owe the full $50,000 on your HELOC and you have an interest rate of 8.00% and a 20-year term, your monthly payment will be $418.

Is a HELOC a good idea right now?

Whether a HELOC is a good idea right now depends on your financial situation and goals. HELOCs can be useful for funding home renovations and other large expenses. However, it’s important to consider the current interest rates and your ability to repay the loan.

What is the monthly payment on a $100,000 HELOC?

The monthly payment on $100,000 HELOC will depend on your answers to these questions: How much of the credit line have you used? What’s your current interest rate? And are you in the HELOC’s “draw” or “repayment” period? In the draw period the payment may be interest-only. In the repayment period, you’ll pay interest plus principal. Once you have these answers, use a HELOC repayment calculator to determine your number.

What are the benefits of a HELOC?

Many borrowers consider a HELOC’s greatest benefit to be its flexibility. If you have a $50,000 credit line but you need only $10,000 at the moment, you can pull $10,000 and pay interest only on that amount, versus taking a lump sum as you would with a home equity loan. Managed responsibly, a HELOC can have a positive impact on your credit score. And HELOCs often have lower interest rates than either credit cards or personal loans.

Do you need an appraisal for a HELOC?

Yes, you typically need an appraisal for a HELOC. Your lender will tell you when and if an in-person appraisal is required. Some lenders use software to provide an estimate of a home’s value. The cost of an in-person appraisal will be $300 to $600 and you’ll likely be expected to pay it. The appraisal helps determine the current value of your home, which is crucial for calculating your home equity.

What disqualifies you from getting a home equity loan?

Several factors can disqualify you from getting a home equity loan. These include a low credit score, high debt-to-income ratio, insufficient home equity, and a history of late payments.

How difficult is it to get a HELOC?

The difficulty of getting a HELOC depends on your financial situation. Lenders consider factors such as your credit score, debt-to-income ratio, and home equity level. Improving these aspects can increase your chances of qualifying for a HELOC.

Does HELOC affect credit score?

Yes, a HELOC can affect your credit score in a few ways. Applying for a HELOC may result in a hard inquiry on your credit report, which can lower your score, but this effect is temporary. And how you manage your home equity line of credit can impact your credit score, either positively or negatively.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

SOHL-Q424-052

Compare HELOC rates in Michigan.

Introduction to HELOC Rates

If you’re seeking the best Michigan HELOC rates, it’s worth a few minutes of your time to make sure you fully understand what is a home equity line of credit, and what benefits (and possible risks) you can expect if you choose this method of borrowing money. HELOCs in Michigan provide a very versatile financing option if you want to get equity out of your home. This guide will ensure you know all the HELOC basics — and that you have all the information you need to get the best available HELOC rate in Michigan.

What Is a HELOC?

A HELOC is a revolving line of credit. Using one is similar to using a credit card, but your debt is secured by your home’s equity, just as your home loan is. HELOCs tend to offer lower interest rates than other forms of credit because your home serves as collateral. Borrowers can generally access up to 90% of home equity with a HELOC.

A borrower is approved for a credit line but can then withdraw funds as they are needed, up to the credit limit, instead of receiving all the funds in a lump sum. This means the borrower pays interest only on the portion of the credit line that they are actively using.

A HELOC has two phases: the draw period and the repayment period. It’s important to understand how they differ when considering your financial options.

The Draw Period

During the HELOC’s draw period, which is usually 10 years, you can access funds up to the limit of your credit, make payments to diminish your outstanding balance (or just pay interest), and borrow again.

HELOCs have a variable interest rate, and at some point during the draw period your interest rate will begin to change with market conditions. When this will happen and any limitations on the minimum and maximum amount that your rate can shift will be in your HELOC agreement.

The Repayment Period

During the repayment period (typically 10 to 20 years), borrowing ends, and you pay back the principal with interest. Variable interest rates can continue to fluctuate. Using a HELOC repayment calculator can help borrowers plan their payments based on the current interest rate.

Where Do HELOC Interest Rates Come From?

The interest rate you obtain when you sign on to your HELOC is clearly important. But what determines the rate you’ll be offered? HELOC rates are tied to a lender’s prime rate, which is influenced by Federal Reserve policy decisions. The prime rate is what lenders offer the customers deemed least at risk of default. The rate is adjusted for borrowers depending on their personal qualifications, such as credit score and debt levels.

How Interest Rates Impact HELOC Affordability

The HELOC interest rate you obtain can have a significant impact on affordability over the 10-year draw and 20-year repayment period. Here’s a look at monthly payments and total interest paid for three different HELOC levels at differing interest levels and terms.

HELOC Interest Rate Trends

HELOC rates in Michigan generally follow prime rate trends. So if you’ve never kept tabs on the prime rate before (or haven’t paid attention since you got your mortgage), here’s a refresher: Since 2018, the prime rate has hit a low of 3.25% in 2020 and a peak of 8.50% in 2023. As you can see from the graphic below, which shows more than 50 years of the average prime rate, it’s pretty unusual for the rate to dip below 4.00% or top 10.00%.

Historical Prime Interest Rate

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

The prime rate is out of your control, but there are various other factors that will influence the rate you’re offered and it’s smart to be aware of them. Take a closer look:

Home Equity

Possessing substantial home equity can significantly enhance your creditworthiness in the eyes of lenders. You’ll need a minimum of 15% to 20% equity to qualify for a HELOC, and the more equity, the better..

Credit Score

A credit score of 680 or higher is an important metric for borrowers, and some lenders prefer a score of 700+. A higher credit score indicates lower risk to the lender, which can lead to more favorable terms.

Stable Income

Lenders assess your overall income to determine your ability to repay the HELOC, but how stable your income is will also be a factor. If your income is erratic — maybe you are a freelancer or own a small business — you may be asked for extra documentation during the application process.

Loan-to-Value Ratio

Lenders consider the combined loan-to-value ratio (CLTV) when setting credit limits. Your CLTV is whatever you owe on your mortgage plus your desired HELOC amount divided by your home’s value. (You can use a home value estimate from a real estate site for this exercise.) You want the answer to be under 90%, and lower is better.

Variable vs Fixed Interest Rates

As we’ve seen, HELOCs feature variable interest rates, which are subject to change throughout the duration of the loan. These rates commence at a lower level compared to typical fixed rates, so a HELOC may start at a more favorable rate than a home equity loan and is likely to have a significantly lower rate than a personal loan. As the borrower, you have to decide if you are comfortable with the somewhat unpredictable nature of HELOC payments.

Tools & Calculators

Online tools can help you determine what your HELOC payments might look like at different interest levels and tell you how much interest you would pay over the life of a loan. A home equity loan calculator can even give you a rough sense of what your borrowing capacity might be. Here are three useful versions:

How to Qualify for a Competitive HELOC Rate

There are a few things you can do before applying for a HELOC in Michigan that may help you secure the most favorable HELOC rate available.

Cultivate Your Credit Score

Maintaining timely payments and reducing credit card balances can improve your credit score. Regularly review your credit report to make sure there are no inaccuracies (yes, they do happen). If you find anything amiss, request a correction and then follow up to make sure it happens.

Assess Your Home Equity

Regular mortgage payments have helped you build home equity over time. Given that lenders are looking for at least 15% to 20% equity, how do you stack up? To find out, subtract whatever you owe on your mortgage from your home’s estimated value (again, an online estimate is fine). Divide the answer by the home’s estimated value. You’ll get a percentage of equity. If it isn’t at least 15%, you may want to hold off on applying until you can build it more.

Calculate Your Debt-to-Income Ratio (DTI)

Your DTI ratio is how much you owe in monthly debt payments (car payment, student loan payment, etc.) divided by your gross monthly income. Home equity lenders generally look for a DTI ratio that’s below 50%, and many prefer you go below 36%.

Application Process for a HELOC in Michigan

Taking the HELOC application process step by step will help ensure you submit an application that is thorough and accurate — two things lenders love.

Step 1. Run the Numbers

Is your credit score at least 680? Your DTI ratio below 50%? Do you have a minimum of 15% equity in your home? Making sure you meet these minimums should save you headaches later.

Step 2. Compare Lenders

Have a look at the posted interest rates and terms for HELOCs among lenders in Michigan. Examine any publicly available qualification criteria, loan minimums, and loan limits. You might find out the draw and repayment periods a lender offers, for example. This should help you identify lenders that might suit your needs. If a lender offers an online prequalification process, you can go through it and consider the feedback.

Step 3: Gather Your Documents

It’s a hassle to get halfway through completing an application only to find you are missing important information. Pull together these items before you begin: proof of identification; proof of income (recent pay stubs, most recent W-2, most recent tax return); employment history, such as a resume; and home insurance coverage information. Have your most recent mortgage statement on hand as well. If your income is erratic, you’ll need at least two tax returns plus a profit and loss statement from your business if you are self-employed.

Step 4: Submit Your Application

Submit your HELOC application via the lender’s preferred channel. This may be accomplished online, over the phone, or during an in-person visit. Double-check everything for accuracy before you sign off. Mistakes can delay processing.

Step 5: Get an Appraisal

A home appraisal will likely be part of your HELOC process. It serves as a critical determinant in ascertaining the precise amount of equity that is available for you to borrow. Your lender will tell you what’s needed, but if an in-person appraisal is required, try to schedule it promptly.

Step 6: Prepare for Closing

Before you are able to access your HELOC funds, it is essential that you sign the HELOC documents and pay any required fees. Some lenders obligingly make funds available within three business days following the closing of the HELOC. Take time to ensure you understand all terms and conditions before finalizing your HELOC.

Tax Benefits and Considerations

Homeowners can deduct HELOC interest if the funds are used for buying, building, or significantly improving their primary residence. Interest deductions are limited to the interest paid on the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). You’ll need to itemize your return to capture this dedication, so you may want to consult a tax advisor for help. Save any receipts from your renovation wherever you keep your tax documents.

Closing Costs and Fees

HELOC closing costs are lower than typical home-buying or refinancing costs. The appraisal fee ($300 to $500) is usually the highest expense. Other costs include application, origination, and administrative fees. Some lenders charge a transaction fee for withdrawals, an inactivity fee, or an early termination fee. Make sure you understand all fees so there are no surprises.

Alternatives to HELOCs

Home equity loans, cash-out refinancing, and personal loans offer alternative borrowing options. Each type of home equity loan or unsecured loan has its pros and cons.

Home Equity Loan

Unlike HELOCs, home equity loans provide borrowers with a lump sum as opposed to a line of credit. Borrowers can usually access up to 85% of their equity (vs. 90% with a HELOC). Other HELOC vs. home equity loan differences: HELOCs, as you know by now, have a variable interest rate. Home equity loans typically have a fixed rate, and so may be more suitable for those who prefer predictable payments. The application process, including the need for an appraisal, is similar to that for a HELOC.

Cash-Out Refinance

Homeowners can get cash by refinancing their mortgage for more than they owe. This special type of mortgage refinance gives you money to pay off your first mortgage. You’ll then take the extra funds in cash to use as you wish. If you’re considering a cash-out refinance vs home equity line of credit, one big difference is that a refinance gets you an entirely new loan and new interest rate. If you have a sweet interest rate on your original mortgage, you’ll want to look carefully at whether it makes sense to refinance. Another difference that may matter to some homeowners: With a refi you have one monthly payment, while with a HELOC or home equity loan, you’ll have two.

Personal Loan

A personal loan is a flexible, typically unsecured loan that you pay back in regular, fixed payments over a set term of 2 to 7 years. Personal loans can be used for various purposes and do not require collateral, but they tend to have higher interest rates than HELOCs.

Credit Cards

Credit cards also typically come with a higher interest rate than HELOCs. It can be costly to carry a large balance on a credit card, although they are useful for smaller purchases. (Buy a new microwave with a credit card, sure. Charge your entire kitchen renovation to one? Perhaps not.)

The Takeaway

HELOCs present a versatile means of tapping into the equity you’ve stored up in your property. Undertaking a thorough comparison of Michigan HELOC rates is paramount to securing the most favorable deal, but so is carefully preparing your application and looking closely at how a variable rate might affect your payments. The good news is that if you opt for a HELOC, you can use only the amount of the credit line that you need, which may help limit the amount of interest you pay.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

What is the monthly payment on a $50,000 HELOC?

If you owed $50,000 on a HELOC and had a 20-year repayment term at a 7.00% interest rate, your monthly payment would be $388. If you snagged a 6.00% interest rate, your monthly payment would fall to $358. With an 8.00% interest rate and a 10-year term, your monthly payment will be about $607. As you can see, the interest rate and term are important considerations.

Is a HELOC a good idea right now?

Whether a HELOC is a smart move right now depends in large part on your personal financial situation. Do you need to borrow a large sum for a project? Then a HELOC may be an efficient way to do that. Are you not quite sure how much you need to borrow? A HELOC may be preferable to a lump-sum loan. Are you already losing a little sleep over all your monthly payments? Then (you guessed it) this may not be the right time for a variable-rate loan (or any loan, unless it is one that helps you consolidate debt and obtain a lower interest rate).

What is the monthly payment on a $100,000 HELOC?

The monthly payment on a $100,000 HELOC depends on how much of the credit line you have actually used, as well as on your rate and term. But if you used the entire $100,000 and needed to pay it back at 7.50% interest over 20 years, your monthly payment would be $806. If you secure a 7.00% interest rate, your payment would be reduced to $775.

What are the benefits of a HELOC?

HELOCs are versatile. You borrow the amount you need when you need it. Because they are secured by your home equity, they typically have nicely competitive interest rates when compared to other borrowing methods.

Do you need an appraisal for a HELOC?

Yes, an appraisal is typically required for HELOCs. The appraisal helps determine the value of your home, which directly correlates with the amount of money you can borrow.

What disqualifies you from getting a home equity loan?

Several factors, such as poor credit history, insufficient home equity, and a high debt-to-income ratio, can disqualify you from obtaining a home equity loan.

How difficult is it to get a HELOC?

The level of difficulty associated with securing a HELOC will depend on your unique financial situation. If you meet a lender’s minimum requirement for credit score, equity level, and debt-to-income ratio, it shouldn’t be hard. If your income is unstable, you may have to work harder to prove to the lender that you are a good risk, but you may still be approved depending on other factors.

Does HELOC affect credit score?

HELOCs can significantly impact your credit score, both positively and negatively. Consistently making your payments on time can lead to a notable improvement in your score, while neglecting to make payments can have an adverse effect. Additionally, opening a new line of credit may temporarily cause a slight decrease in your score, but this impact is usually short-lived.

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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